The pound slide continues this week. Currently, GBP/USD is trading at 1.2645, down 0.13% on the day. On the release front, unemployment claims, today’s highlight is unemployment claims, which is expected to drop to 212 thousand. On Friday, the U.S. releases durable goods orders.
This week’s election for the European parliament could have significance for the Brexit negotiations. Starting on Thursday, voters in the 28 EU countries (including the U.K.) will elect lawmakers to the European parliament. Key issues included the economic slowdown, Brexit and the rise in Euroskpeticism. Euro-skeptics increased their representation in parliament from 12% to 25% in the last election, and with the dramatic increase in strength of populist parties, this trend could well continue. The Brexit party, headed by Nigel Farage, is expected to do well, while the Conservatives could be trounced, adding to Prime Minister May’s woes. There have been rumors swirling about May being forced out in the next few days or weeks, and the government has delayed the withdrawal bill, which was scheduled to be voted on in parliament on June 4.
There were no surprises from the Federal Reserve minutes, which provided details of the policy meeting earlier in May. Fed members continued to preach patience, stating that rates will likely remain unchanged for some time. The minutes indicated that although members are more optimistic about economic growth, they remain committed to maintaining current rate levels, given that inflation remains low. It should be noted that the policy meeting took place on May 1-2, one week before President Trump announced new tariffs on China, which has significantly escalated trade tensions between the U.S. and China.
The Fed minutes may have reinforced the central bank’s stance that no rate moves are planned until next year, but the markets don’t share this view, with many analysts expecting at least one rate cut in 2019. Lower U.S. rates could dampen enthusiasm for the U.S. dollar. The CME Group has priced in a 36% likelihood of a 25-point basis cut at the September meeting.